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Mar 13 2009 12:00AM

Question:

In the current market conditions, is it wise to transfer mutual funds, bonds, and stocks within a 401(k) plan to a money market fund within the plan?

Answer:

According to FPA member Terry Donahe, CFP®, of Cascade Wealth Management, many Americans are naturally concerned and worried as they watch the value of their retirement accounts drop in value during the current bear market.  Many are tempted to move out of the stock market into safer investments in an effort to limit further losses, he said.

However, considerable academic research indicates that it is very difficult to consistently "time" the entrance and exit into the stock market and, as a result, generate results that are superior to the overall returns of the market. Long-term investors are better served by properly diversifying their holdings across and within asset classes, keeping their investment expenses low and pursuing tax-efficient investment strategies. The stock market will eventually recover and those who remain in the market will eventually be rewarded for remaining steadfast.

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